Snippet #22 Entry for Goods: Purchase and Sale

Here, we’ll construct journal entries for purchase and sale of goods including where cash was paid (cash trade) and where it wasn’t (credit trade).

Purchase

Purchase means an action of obtaining goods against cash or a promise to pay cash at a later date.

Now, regardless of whether cash was immediately offered or in future, one sure thing is an increase in the stock of goods (an asset), which is debited.

On the other hand, we would either have a decrease in cash (an asset) or, an addition to our list of creditors (a liability), both of which are credited.

Sale

If purchase was an action of obtaining goods, Sale is an action of providing goods against cash or a promise to receive cash at a later date.

Here, the sure thing would be the going out of goods i.e., a decrease in goods which is credited.

The other effect would either be an increase in cash (an asset) or, an addition to our list of debtors (an asset, too) both of which are debited.

Thus, we’ve taken a look at how entries are made for purchase and sale transactions, be it on cash or on credit.

Next, we’ll look at what happens in case the goods are returned.